China Developers Outlook Raised to Stable on Liquidity, S&P Says

Feb. 20 (Bloomberg) -- Standard & Poor’s raised its outlook
for Chinese residential developers to stable from negative,
saying the companies are facing “reasonably favorable” credit
and operating conditions in the next six to 12 months.

Chinese developers were able to improve their liquidity at
favorable costs because funding channels reopened, the credit
ratings company said a report released today. S&P said it didn’t
expect the central government to “drastically” tighten or
loosen controls on the property market.

“We expect to take more positive rating actions this
year,” S&P analysts, led by Bei Fu, said in the report.
“China’s residential real estate developers are on less shaky
terrain this year.”

Home prices posted the biggest gain in two years last month,
rising 1 percent from December, according to SouFun Holdings
Ltd., China’s biggest real estate website owner. Developers have
put more properties on the market since the Ministry of Housing
and Urban-Rural Development said in December that it would
support demand from residents seeking bigger homes this year,
according to SouFun.

Home sales strengthened late last year and prices in the
nation’s 100 major cities will rise as much as 5 percent this
year, S&P said.

The credit quality of large and small developers will
diverge, the ratings company said. While the largest developers
take advantage of the market conditions to increase market share,
smaller ones are likely to become increasingly vulnerable, or
even be squeezed out of the industry as they struggle to raise
funds and overcome “stiff” competition, it said.

“We expect overall property prices to rise modestly this
year; sales volumes could increase for bigger developers but
remain sluggish for smaller players, which have fewer available
projects,” Fu wrote in the report.

S&P cut the outlook for Chinese developers to negative from
stable in June 2011, citing tighter credit and government curbs
as well as slowing property sales.